Sunday, October 25, 2009

Investing: KOG

Yahoo!Finance: KOG
3Q10 Earnings Report
1Q10 Earnings Report

NEWS

July 10, 2011: KOG -- one of six oil and gas companies with best price appreciation (publicly traded shares). 


April 25, 2011: Motley Fool on KOG.

February 12, 2011:  Michael Filloon/SeekingAlpha on KOG (February 11, 2011).

January 5, 2011: KOG bows says it partners with XOM. I was originally concerned with KOG due to need for capital to finance it's drilling program. With XOM as a partner, and KOG located in some of the best Bakken/Three Forks, there is no question any more that KOG is a great holding in the Williston Basin. One could put this among the top five drillers in North Dakota and a great stock to accumulate.

January 4, 2011: Investopedia on KOG.

November 5, 2010: Comments on KOG's 3Q10 earnings.

October 19, 2010: KOG increases acreage base by 25%! Huge deal. Worth $1.6 billion? Paid $88 million in cash.

May 4, 2010: Three wells on one pad!
  • 18987, KOG, Two Shields Butte 14-21-16-2H, SESW 21-149N-92W
  • 18988, KOG, Two Shields Butte 14-21-33-15H, SESW 21-149N-92W
  • 18989, KOG, Two Shields Butte 14-21-33-16H3, SESW 21-149N-92W
April 24, 2010: When I first posted my commentary regarding KOG, I asked the question: where does KOG get the cash it needs to pursue its very aggressive CAPEX program. Recent events may have shed some light on the situation. It started with this bit of sleuthing. First Arrow Midstream announces a joint venture with XTO and the Three Affiliated Tribes for a new pipeline in the Mandaree area, where there are no XTO wells. Review of KOG's most recent corporate presentation reveals that KOG has partnered with XTO (50/50) in KOG's Two Shields Butte and Saddle Butte prospects. Ka-boom.

February 21, 2010: Hypothetical investment results with dollar-cost averaging since KOG announced the results of its first wells back in 2007.

February 16, 2010: KOG provides interim update on operations, including announcement that recent short lateral had an IP of 1,419. The report also notes that a) KOG has some 3-well pads; and, b) they are moving to long laterals (like everyone else, it seems).
From the report: "Kodiak focuses its well-performance analysis on longer-term production rates and also looks to ensure that it invests its capital for the most efficient development of our reserves.  Based upon our production data, the recovery rates per-foot of horizontal lateral appear to be greater in the shorter laterals; however our analysis indicates that we achieve a stronger rate of return with the longer laterals as additional reserves are obtained with marginal incremental investment.  Therefore our 2010 development program will be geared to longer laterals as opposed to the shorter laterals."
December 18, 2009:  KOG announces $60 million 2010 CAPEX program ($21 million CAPEX in 2009). KOG will take delivery of a second rig in February 2010 for the Bakken. KOG commits to 12 gross (9.5 net) wells in 2010; this compares to 9 wells in 2009.

COMMENTARY

This is a most interesting play. It's one of the smaller companies in the Bakken by market capitalization.

KOG was one of the first to be active in the Fort Berthold Indian Reservation. The reservation has part of the prolific Parshall oil field as well as the developing Van Hook and Big Bend fields.

It appears one can divide the FBIR in quarters. I don't know much about the SW or the SE quarter yet. The NE quarter is "owned" by EOG. The rest of the productive FBIR is split among several companies notably Slawson and KOG. (I am not aware that Slawson is publicly traded; I could be wrong. Slawson partners with several other producers, most notably NOG.)

KOG has a number of wells on the FBIR, and there's a lot of discussion on the message boards about how well KOG might do. I can't argue. KOG might do quite well.

In the summer of 2009, I was negative to neutral on KOG; with KOG adding a second rig in the Bakken, one can argue KOG is stepping into the "big leagues" in the Bakken -- maybe not quite there but heading in that direction.

KOG share price has lagged NOG significantly (January, 2010). Earnings soon to be reported. Although KOG states it has $50 million in assets, most of that is in property plant and equipment ($35 million); it has only $1.75 million cash on hand (according to Yahoo!Financial and KOG's current presentation, based on 3rd quarter data). And yet KOG says it has committed to a $60 million 2010 CAPEX program: where do they get that cash, $60 million? They state, in their current presentation, that in early 2010 they will have established necessary credit lines. "Kodiak expects to substantially fund the budget primarily from cash on hand ($1.75 million vs $60 million CAPEX), cash flow from operations (negative cash flow?), and potential borrowings under a new reserve-based revolving line of credit that it expects to put into place in early 2010." To me, it looks like they will need to a) borrow significantly, b) issue more stock, or c) hit some huge wells. Dunn County, where most of their activity is, is a good location, but it's not the Parshall oil field. KOG has been as high as $6/share; around $1 last March, 2009, and now back up to $2.50 (January, 2010). Speculative to say the least.

Updated: April 25, 2011.

8 comments:

  1. Hey, do your research! They had a secondary
    offering for CAPEX! I think you'll find
    they are not speculative. Biggest problem
    is dvn and xto are working with them and might
    be taken over by one or the other.

    ReplyDelete
  2. Hey! Do your research. KOG did a secondary
    and is funding the CAPEX with the proceeds.
    This is definetly not a speculative stock.
    DVN and XTO has been in partners with them
    on their leased property.

    ReplyDelete
  3. Thank you for stopping by.

    It was my understanding that KOG sold 13.8 million new shares (closed in October, 2009) for $2.20/share, resulting in net of about $28.6 million. That hasn't shown up on the Yahoo!Financials yet. Those numbers still show $1.75 million in cash and $6 million in annual cash flow. If there was another offering that raised another $60 million, I missed it but that would further dilute the stock. If they haven't, the $28 million net proceeds from the October offering fell dramatically short of the $60 million CAPEX plans, but I would love to hear the details of what I am missing.

    For me, I still put KOG as a top consideration for those investing in the Bakken but for most of my viewers, KOG would not be considered a blue chip stock.

    ReplyDelete
  4. With regard to a "takeover" by DVN or XTO, anything is possible.

    There were a lot of changes in 2009 (mergers, companies leaving the Bakken, secondary offerings, partnerships, etc) due to significant drop in price of oil.

    Those that survived the drop in price of oil then, will only get stronger going forward. (That which does not kill you, makes you stronger.)

    Assuming price of oil stays above $80, I doubt many of the smaller companies will be anxious to be bought out. But good companies are being bought at a premium, so even if they are bought out, that might be better than some alternatives. My gut feeling is that the amount of KOG acreage we are talking about is not enough to interest big players.

    ReplyDelete
  5. It's not the amount, but where it is located.
    You know, if there is oil under thier land
    it might be valuable to an oil co.

    ReplyDelete
  6. You are correct. I should have said that the market value of KOG is likely not big enough to interest any of the majors.

    ReplyDelete
  7. Bruce, Thanks for that update. Kog looks
    like they have some plans on the drawing
    board.

    ReplyDelete
  8. Thank you for stopping by. I don't own any KOG (my investments in the Bakken are minimal compared to my overall portfolio). I have always enjoyed following KOG. I was initially concerned about location of KOG's property, but on the other hand, I wish I had listened to my own opinion when I said a few months ago that 2010 will be the year for KOG now that obstacles from drilling on the reservation are resolved. The pipeline and the partnership with XTO and another company (most likely Slawson) is very, very interesting. Good luck.

    ReplyDelete